Super & divorce

Splitsville: The valuation tangles |  The Family Court

Marriage breakdown is far from uncommon these days. Recent Australian Bureau of Statistics data records that the marriage rate is 5.5 marriages per 1000 people, and the divorce rate 2.2 per 1000 people.

But dividing up all of the assets goes beyond who gets the Nintendo Wii and who gets the Commodore. There are serious assets such as the family home to put on the negotiating table, with superannuation probably being one of the bigger assets of any longer term partnership.

Changes to the Family Law Act in 2002 and further amendments in 2005 now see super treated just like any other asset of a marriage or de facto relationship (of at least two years duration or where the de facto couple have a child, and that includes same sex couples). And just like other assets, super can be divided up and shared between the divorcing or separating parties.

If the split is amicable, couples can negotiate around the amount in the super fund, treating the value of the fund in question as an amount that can be balanced against other assets, like the house if one person needs to stay in the marital home (for example to care for children).

Valuation tangles
The value of a super fund however is something that needs to be considered carefully. Accumulation super funds, which cover most Australian super funds, are fairly straightforward, and the value of your entitlement basically depends on how much you can accumulate through contributions plus investment earnings.  The value of such a fund can be determined at an appropriate time such as at the divorce settlement date.

A defined benefit fund's value however may depend on a set formula, on length of membership, age at retirement and perhaps more factors. Actuarial calculations may be needed, and family law regulations have had to spell out what is needed (appropriately known as 'splitting' laws, and you can get an idea of what's involved here).

There may be a case for maintaining the account and dividing it later, especially where doing so will lead to much greater growth of the final amount. In this case a fund can be 'flagged', which maintains a fund but notes how the interest in it is allocated. The fund cannot pay out any benefits until the flag has been lifted, either by agreement or court order.

The Family Court
But if the breakup is bitter and lawyers are involved, the Family Court can order that all assets, including super, should be split – forthwith, and in proportions determined by the court. The division may not always be fifty-fifty, as family law stipulates that contributions 'made in the capacity of homemaker or parent' are always to be taken into account as well as the future income-earning ability of each. It is also immaterial if, for example, one partner was the sole financial contributor to the super fund.

Dividing the super fund can see one portion rolled over to another account in the same fund in the name of the 'non-member spouse' (as the Tax Office puts it) or transferred to another fund altogether. The tax-free and taxable components are determined and proportionally split between the two.

A roll-over within the same fund will generally be tax-free to the fund. Anything that happens to the non-member spouse's balance, like contributions, investment earnings and benefit payments, will be subject to the usual tax laws.

And where an income stream has already commenced for the 'member spouse', the splitting laws allow that income stream to be divided up as well, although in most cases it will be stopped while the fund is divided and recommenced under the new arrangements. Splitting the income stream may be necessary if, for example, the governing rules of the fund disallow stopping an income stream once it has started.

Where assets are transferred to a spouse's super fund as a result of a divorce agreement, any income tax payable by the transferor may be eligible for a deferral – so that the recipient pays the tax when they actually sell the assets at a later date.

Spouses wanting to find out more about their partner's superannuation can get information from the fund's trustee. The Family Court has a 'superannuation information request' form to help with inquiries (download it here).

Same-sex super
For all the details about how the superannuation laws treat same-sex couples, click here.

Last reviewed 4/10/2012

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